Jamaica Blues: Pregnant and shut out of her business

Estella Yang is due to give birth next week, but she's uncertain about the future for her family after she was shut out of her Jamaica Blue cafe in Melbourne this month.

Mrs Yang, 33, and her husband claim they have lost their business because, with one child and another on the way, they could no longer work for free in the store.

Estella Yang is a former Jamaica Blue franchisee .Credit:Eddie Jim

Working for free

The Yangs immigrated to Australia from China and bought an existing Jamaica Blue franchise two years ago for $270,000.

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There are around 170 Jamaica Blue coffee shops around Australia, operated by franchise giant Foodco, and Mrs Yang says the pair worked in the Melbourne store they owned for free for more than two years.

"If we are not working for free we cannot afford the wages, we cannot afford the rent," she says. "[Foodco] just wanted to open a new shop and get some money and they didn't care about anything else and we had to keep working for free."

Mrs Yang says having her first child and now pregnant with her second meant she could not keep going.

"Before it was ok, because we didn't have any kids but now I have had a kid and I am not working in the shop I can’t keep doing it."

The Yangs say turnover for their franchise was around $500,000 a year and they paid $12,000 rent a month to the shopping centre with a 5 per cent rent increase every year.

"I am pregnant and I am due next week," says Mrs Yang. "I was keeping working until a few months ago and then I felt really tired and I can't work anymore I told Foodco, can they help me at all with reducing the rent? The consultant from Foodco said 'Sorry we can't help' and just find some reasons to negotiate with the shopping centre. If I can't work I don't have money to pay for the rent."

Mrs Yang says she did not receive any assistance from Foodco and kept on having to pay the franchise fee.

"[The landlord] sent me a default notice and pushed me to pay the money, finally a few months later I still can't afford the rent," she says. "They have just taken over our shop."

Mrs Yang says she does not expect to get any money from Foodco for the franchise.

"They didn't offer anything," she says. "My husband is trying to find some work. It's not that easy to find a job."

A spokesperson for Foodco said the franchisor strongly disputes Mrs Yang's claims, which it says are incorrect.

There are 170 Jamaica Blue franchises in Australia. Credit:Phil Carrick

Fairfax Media understands around 20 Foodco franchisees have made submissions, however the majority of these are confidential.

Alan Pearson is one former franchisee who has made a public submission to the inquiry in which he says he lost everything after running a Jamaica Blue franchise in Castle Hill in NSW for 13 years.

Pearson bought the franchise for $560,000 in 2004 but quickly found the figures he had been quoted by Foodco were "widely overstated". He had been assured of gross revenue of $18,000 per week and was taking only $12,500 a week.

"Both my wife and myself worked in this shop seven days a week averaging 60 hours for most of [the] 13 years we were there. No holidays were taken during this period, as a result our health deteriorated significantly," Pearson says in his submission. "We repeatedly informed Foodco of our plans including my poor trading position. They were not interested in my bottom line, simply my sales and therefore their commission."

When the Castle Hill shopping centre was redeveloped Pearson says Foodco decided not to renew the lease as it was too high.

"They abandoned us after 13 years, no offer of alternative site, no compensation for 13 years of faithful service," he said. "To a franchisee no lease equals no business. This is a disaster, and it's common."

Pearson closed his Jamaica Blue store on 28 February 2018 and received a letter from Foodco demanding payment of $68,000 within 14 days.

He has had to sell his family home to repay his debts and says he still has considerable debts.

No reasonable prospect of making a profit

Stewart Levitt, of Levitt Robinson Solicitors, has represented Jamaica Blue franchisees and says in his submission to the inquiry that Jamaica Blue stores are forced to serve a "bland, mundane menu" which is relatively expensive.

"The franchisor's ability to dictate which supplies the franchisee must purchase and to control the mark-ups and maintain its own margins appear to be the main drivers of the franchisor's 'system'," he says.

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Levitt says franchisees are set up to fail from the outset with high costs of buying a Jamaica Blue franchise.

"Franchisees who buy into Jamaica Blue are induced to spend substantial sums, frequently in excess of half a million dollars, on set-up costs for a cafe, with no reasonable prospect of making a profit," he says.

No guarantee of success

A spokesperson for Foodco said it provides franchisees with extensive support in their business.

"Unfortunately, like any business or investment we cannot guarantee success and in the current challenging retail climate there’s a great deal of pressure brought on by reduced sales growth in shopping malls, high rents and rising operational costs (e.g. electricity)," the spokesperson said.

The spokesperson said Foodco tries to minimise risk through a shared commitment with its franchisees to consistent adherence and compliance with its business model.

"The success of our business is entirely underpinned by the success of our franchisees and it is in no one’s interest to pursue practices which would lead to a failed franchise," the spokesperson said.

Parliament's franchising inquiry hearings are scheduled for this month.